10 Quality Stocks

The likelihood of a well-managed company to excel in the future is greater than the likelihood of a poorly managed enterprise to be profitable in the future.

Get to know the 4 Dimensions of Quality Stocksand

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It's all about Quality Stocks

Quality Stocks are not necessarily the best absolute performers but they have a superior return-to-risk ratio.

Quality stocks should become long-term investments and are a sound basis for any core portfolio.

Consistent Returns

Rising Dividends

Low Loss Periods

Long Look-back Period

As a result, a Quality Stock has a high degree of Stability. It delivers high returns with relatively low downside risk. But how reliably can this be measured ? Let's view an example.

The All-in-one overview of the strongest stocks globallyGet the stability rankings of 14,000+ stocks worldwide

Filter: use the dropdown boxes to select just one or a combination of a Sector, Industry or Exchange.

Zoom: hold and drag a rectangle with a mouse to zoom in or expand an area with two fingers.

Hide: click on the legend to hide/view data points (green/red items).

Chart: click the stock name to see its chart in Yahoo Finance. There, make sure to scroll the chart to the current date.

Not shown: stocks with zero volume on the day of calculation and stocks with negative return since inception are not shown.

Sector

Industry

Exchange

Sector and Industry definition according to Thompson-Reuters nomenclature.

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How to read the chart (The 4 Dimensions)

1st DimensionLong-term Stability: this metric is the fundamental algorithm to identify the robustness and stability of a time series. The higher the metric the more robust is the stock's price over its entire lifetime. Only rankings above 100 (yellow area) have produced returns (incl. dividends) that have sufficiently compensated for the risk taken over an extended period of time.

Rule of thumb: right is better than left

2nd DimensionMedium-term Momentum: this metric is a subset of 'Long-term Stability' and measures the most recent stability value since the last turning point. The higher the value relative to 'Long-term Stability', the higher the current Momentum. Only rankings above 100 (blue area) have produced returns (incl. dividends) that have sufficiently compensated for the risk taken over a reasonably long period.

Rule of thumb: higher is better than lower

3rd DimensionShort-term change: this metric measures the 30 day change of 'Long-term Stability'. A strengthening of stability (indicated in green) means that returns are outweighing current risk. A weakening of stability (indicated in red) is a warning signal of increased risk ahead.

Rule of thumb: green is better than red

4th DimensionVolume: is given as a daily average. The higher the volume the larger the point.

Rule of thumb: larger is better than smaller

A model representation of stock price patterns

And where to find them in the All-in-one chart above

0%

of all stocks lack Stability

0%

of all stocks have a robust Momentum

0%

of all stocks have a high degree of Stability

Explanation (technical)

Each stock's
time series is scanned for two metrics: the overall Stability measure and the optimum Stability measure. The calculation of 'Stability' is very precise since a better return-to-risk metric is employed. Instead of standard deviation, downside deviation, VaR or lower partial moments etc. which take 'average views' on the dataset, each single data point gets penalized if not preceded by lower points only or succeeded by higher points only. In relation to the overall return a degree of Stability is the result. To factor in the 'reliability' of the data set a decaying time multiplier penalizes time frames less than 3 years.

Long-term Stability is an overall stability measure: the time-adjusted return-to-risk ratio (see explanation above) is taken of the entire data set of a stock. Above the threshold value of 100 a stock can be deemed as having adequate returns (incl. dividends) relative to risk. Only 13 out of 1000 stocks exceed this threshold and operate in a consistently growing or meanwhile maturing business. Medium-term Momentum is an optimum stability measure: the time-adjusted return-to-risk ratio (see explanation above) is taken of the longest possible past time window from today which yields the maximum value. This longest time window typically starts at a major turning point of strength and is shorter than the entire time frame, hence 'medium-term Momentum'. Also here, a value above the threshold of 100 indicates adequate return (incl. dividends) relative to risk. The value can never be less than the long-term Stability value. The higher the Momentum value relative to long-term Stability, the stronger the turning point turned out to be. Only 50 out of 1000 stocks have recently shown Stability of different time length where return compensates sufficiently for the risk taken.

The great majority, namely 93.7% of all stocks do not compensate enough for the risk taken and are therefore in the pool of volatile, fluctuating, non-directional, erratic and instable stocks.

Explanation (logical)

Nobody knows the future.
Stock prices anticipate the future by reflecting today what the investor community knows or believes to be relevant in the future. But next to a speculative factor there are also some hard facts: debt ratios, cash flows, return on equity, profit margins, revenue growth, brand recognition, management qualification and so on. Therefore, the best knowledge and most irrational speculation of all investors is aggregated and visible in past
and current stock prices. But the higher the consensus (or the lower the information surprise) among so-called fundamentalists, technicians, informed and uninformed investors the less choppy the price fluctuation of the stock is likely to be. The persistence of high consensus over time qualifies for a high Stability (a value > 100) measure. It is an indication that the investor community has identified a company as being a quality stock*.

An economist strolls down the street with a companion when they come upon a $100 bill lying on the ground. As the companion reaches down to pick it up, the economist says, “Don’t bother—if it were a real $100 bill, someone would have already picked it up.”

To be clear: businesses are dynamic and constantly changing. What has performed in the past may fail tomorrow. But: the likelihood of a well managed company to excel in the future is probably higher than the likelihood of a badly managed company to excel in the future.
Would you not trust your money to Warren Buffett because he has excelled in the past ?

More insights of the same data set

Now since 'Long-term Stability' and 'Medium-term Momentum' are quantified, the 'Short-term 30 day change' in Stability (green, red) gives an indication of immediate acceleration. Clearly, the higher the Momentum and the higher the short-term change, the stronger is the current surge in price (click on the uppermost and rightmost stock name).

The 'time-adjusted risk' measure not only takes account of any drawdown in the time series but also of the relevance, i.e. how long the time series is (see the technical Explanation above). Consequently, higher risk is not necessarily compensated by higher return since 'time-adj. risk' measures the truly undesired price moves (unlike conventional risk metrics).

The 14,000+ stocks Table

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